Final Results - Year Ended 31 December 1999

Persimmon PLC 6 March 2000 PERSIMMON PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 1999 Highlights * Record pre-tax profits of £81.6 million, an increase of 35% * Basic earnings per share of 32.1p, an increase of 28% * Further margin growth with operating margin of 13.5% * * 7,101 homes legally completed (1998: 6,483) * Return on average capital employed increased to 19.6% * Over 31,600 plots available for development * Average selling price of £96,055 (1998: £86,414), an increase of 11%, supported by change in sales mix * Dividend of 11.1p (1998: 10.4p), covered 2.9 times * Gearing of 26%, (1998: 30%); interest cover of 9 times * excluding BES re-sales from turnover Duncan Davidson, Group Chairman, commented: 'We have now increased our profits nearly four-fold over the last four years. Some observers seem convinced that the market for new homes is about to decline as a result of recent interest rate rises, and despite firm fundamentals. Due to the healthy state of the economy, low unemployment levels, rising real incomes, good affordability and continuing planning delays, demand for new homes continues to exceed supply. The outlook for our markets therefore remains very positive. At 1 March sales for the current year were at a record level. The value of our forward sales is currently 15% ahead of that at the same date in 1999. We are confident of achieving another excellent result in 2000.' ENQUIRIES: Duncan Davidson, Group Chairman Michael Sandler/Justin Strong John White, Group Chief Executive Hudson Sandler Limited Persimmon plc Tel: 0171 796 4133 Tel: 0171 796 4133 on Monday, 6 March 2000 only Tel: 01904 642199 thereafter CHAIRMANS STATEMENT During 1999 Persimmon has increased net-pre-tax profit by 35% to a record £81.6 million (1998: £60.5 million). We have now increased our profits nearly four-fold over the last four years. Earnings per share in 1999 rose by 28% to 32.1 pence (1998: 25.1 pence). Some observers seem convinced that the market for new homes is about to decline as a result of recent interest rate rises, and despite firm fundamentals. In fact, over the 27 years of Persimmons history our profits have never declined because of modest interest rate rises. The only falls were as a result of the housing market turmoil following the dramatic MIRAS changes from 1988. Due to the healthy state of the economy, low unemployment levels, rising real incomes, good affordability and continuing planning delays, demand for new homes continues to exceed supply. The outlook for our markets therefore remains very positive. In 1999 we legally completed a record 7,101 homes (1998: 6,483 homes). Profit per unit increased by 23% to £11,486. (1998: £9,337). Return on average capital employed increased to 19.6% (1998: 17.0%). Net borrowing was slightly lower at £95 million, giving gearing of 26% and interest cover of 9 times. The average maturity of our committed debt facilities is four years. We are proposing to increase the dividend by 6.7% to 11.1p per share (1998: 10.4p per share), which is covered 2.9 times. We paid an interim dividend of 3.5p per share in October 1999 and will recommend a final dividend of 7.6p, which will be payable on 28th April 2000 to shareholders on the register as at 17th March 2000. The growth of Persimmon has mainly been achieved through pursuing organic expansion, the only major exception being the acquisition of Ideal Homes in 1996. On 22nd February 2000 we acquired Tilbury Douglas Homes Ltd. for £19.5 million in cash. This adds over 1,000 plots to Persimmons Scottish landbank. We continue to watch our industry very carefully for further acquisition opportunities. The time has now come for us to implement our strategic plans for the continued organic growth of our business. During the next few weeks we are therefore splitting our operations into two new Divisions, Persimmon Homes South led by Mike Farley, and Persimmon Homes North led by John Millar. Each Division will consist of ten of our existing operating companies. We have a number of key Directors immediately below Main Board level who are very capable of assuming increased responsibilities. They will form the Boards of the two new Divisions, without introducing any additional layers of management. This structural change is the most significant event at Persimmon since our acquisition of Ideal Homes. These two new Divisions, combined with the strength of our increasing landbank, place Persimmon in a very strong position to grow our market share, whilst at the same time continuing to focus on the further improvement of our profit margins and return on capital employed. Turning to current trading, at 1st March sales for the current year are at a record level. The value of our forward sales is currently 15% ahead of that at the same date in 1999. We are confident of achieving another excellent result in 2000. All the Persimmon team have worked extremely hard to get our company into such a strong position. I thank them all for their continuing efforts and success. Duncan Davidson 3 March, 2000 CHIEF EXECUTIVE'S REVIEW During 1999 we made further good progress in the planned expansion of the Persimmon Group. Our unit completions increased by around 10% to 7,101 against a background of good demand in all areas. Whilst the increase in volumes was in line with our expectations, we continued to pursue progressive margin growth. The further improvement in our operating margin to 14% for the second half clearly demonstrates our focus on improving margins whilst expanding our business geographically. We will continue to adopt this approach in what we believe will be a further continuing period of good demand despite the threat of higher interest rates. With forward sales revenues currently 15% ahead of last year we are in a strong position to maximise margin per plot and protect our land bank, whilst moving Group profits ahead. We are therefore confident of another successful year in 2000 without expecting or requiring much volume growth. STRATEGY Since the acquisition of Ideal Homes in 1996 our business has continued to grow and all of the medium term targets we set ourselves have been achieved or exceeded. At the time of acquisition we put in place a management structure which would ensure that we would deliver the results. Having achieved these targets, we now believe it is time to implement the necessary structure to ensure that our successful management culture and control continues. We will position the business for further growth without introducing extra layers of management, by realising the potential of both our top quality management and asset base. With effect from 3rd April 2000 we are creating two divisions, South and North, which will be led by Mike Farley and John Millar respectively. Mike Farley is currently Chairman of the Central Region. Mike joined Persimmon in 1983 and was appointed to the Main Board in 1989. John Millar joined Persimmon in 1986 and became a Main Board Director in 1993. The Northern Region has grown successfully under his Chairmanship. Each Division will have the ability to grow their business further to 5,000- 6,000 units per annum over the medium term. We have some extremely talented and keen operations directors who will join the Boards of the two new Divisions. We believe that the proven key decision makers within our business will have the structure to operate most effectively whilst building their businesses to increase profitability and market share. Looking ahead there are opportunities for the business which we continue to view with great excitement as our industry rises to the challenges of increased customer demands, in terms of quality, choice and service. We are still encountering unnecessary and frustrating planning delays which continue to emphasise the importance of maximising margins per plot. Through our continued imaginative approach to all our developments in partnership with our customers, we are well positioned to maximise sales values. The improvement to our customer offer through our Finishing Touches scheme further enhances our ability to grow our market share and maximise returns per plot. In addition, our new improved web site makes our customers' choice more accessible and is already attracting great interest. MARKET CONDITIONS We are experiencing good demand in all regions with price movement more noticeable in areas of short supply in the Central and Southern parts of the UK. Further North and into Scotland prices are generally more stable, although again where there is a short supply of good quality housing the demand is increasing. We expect a good level of demand to continue and to see further increases in selling prices where conditions permit. LAND AND PLANNING We have once again increased our total land bank, to 31,652 plots, with an average plot cost of £21,797 representing 20.4% of anticipated future sales revenue. In addition, we have 6,562 acres of strategic land under our control. This strategic land holding has provided further successes this year with over 25% of our replacement plots being acquired from this source. We expect our strategic land bank to provide an increasing amount of our plot replacement in the future. BUILD COSTS Our overall costs last year increased by c. 4%. Most of this was due to a rise in labour costs. However, we were able to mitigate this by smoothing out our build programmes following the introduction of new construction management tools associated with the implementation of our new IT systems. PROCUREMENT Over the years we have worked very closely with both manufacturers and builders merchants to ensure that we not only enjoy the very best prices, but also excellent service levels and guaranteed deliveries. However during 1999 we carried out a detailed review of our procurement procedures. Following this review, it is our strong conclusion that the advantages of our present system of supplies and deliveries direct to our sites, will increase following the recent consolidation in this part of our sector. We have excellent relationships with all the major merchants and manufacturers which will ensure competitive pricing to us whilst tapping into their nationwide distribution network, thereby ensuring prompt deliveries. We therefore expect to continue to buy and receive our products on time and at the most attractive prices. In fact, whilst some material prices rose during the year, it was pleasing to note that overall we saw a reduction in the cost of our materials. We believe this is the most efficient system and will continue to be so whilst allowing us to concentrate on the main areas of business of buying land and selling houses. LOOKING FORWARD In addition to the plans implemented in respect of our management structure, we have a clear focus on our product and customers. With this in mind we have further improved the Persimmon Pledge. We are constantly reviewing our house types and layouts. We continue to realise many benefits to our business by the implementation of our new I.T. systems. Customer care, procurement, sales management, construction and WIP management, and other areas of our business will all continue to benefit. We believe that in the future there will be less standardisation of housing with an ever increasing number of bespoke schemes. Our diverse range of house types, our relationships with national suppliers and our emphasis on controlled build programmes will stand us in good stead as these planning led changes affect our industry. We remain confident in our future. John White 3 March, 2000 Consolidated profit and loss account for the year ended 31 December 1999 1999 1998 £'000 £'000 Turnover Continuing operations 695,854 572,407 Cost of sales (577,474) (478,849) ________ ________ Gross profit 118,380 93,558 Net operating expenses (26,216) (20,336) ________ ________ Operating profit Continuing operations 92,164 73,222 Net interest payable and similar charges (10,600) (12,689) ________ ________ Profit on ordinary activities before taxation 81,564 60,533 Tax on ordinary activities (23,928) (15,738) ________ ________ Profit for the financial year 57,636 44,795 Dividends (20,079) (18,548) ________ ________ Retained profit for the year 37,557 26,247 Basic earnings per share 32.1p 25.1p Diluted earnings per share 31.8p 25.1p Dividend per share 11.1p 10.4p The group has no recognised gains or losses other than the profits above and therefore no separate statement of total recognised gains and losses has been presented. Consolidated balance sheet at 31 December 1999 1999 1998 Note £'000 £'000 Fixed assets Tangible assets 11,105 10,569 ________ ________ Current assets Stocks and work in progress 584,694 558,865 BES assets - 14,065 Debtors due after one year 1,158 4,624 Debtors due within one year 45,426 36,767 Cash at bank and in hand 3 51,762 184 ________ ________ 683,040 614,505 ________ ________ Creditors due within one year Borrowings 3 (22,605) (15,809) BES advances - (19,128) Other creditors (164,963) (169,718) ________ ________ (187,568) (204,655) ________ ________ Net current assets 495,472 409,850 ________ ________ Total assets less current liabilities 506,577 420,419 ________ ________ Creditors due after more than one year Borrowings 3 (123,998) (81,270) Other creditors (18,904) (18,403) ________ ________ (142,902) (99,673) ________ ________ Net assets 363,675 320,746 Capital and reserves Called up share capital 18,133 17,873 Share premium account 200,801 197,920 Merger reserve 3,123 3,123 Revaluation reserve 1,242 1,242 Profit and loss account 140,376 100,588 ________ ________ Equity shareholders' funds 363,675 320,746 Net assets per share 200.6p 179.5p Consolidated cash flow statement for the year ended 31 December 1999 1999 1998 Note £'000 £'000 Net cash inflow from operating activities 2 56,954 18,014 _______ _______ Return on investments and servicing of finance Interest received 161 153 Interest paid (7,185) (11,970) Interest paid on finance leases (384) (349) _______ _______ (7,408) (12,166) _______ _______ Taxation UK corporation tax paid (16,744) (8,790) _______ _______ Capital expenditure Purchase of tangible fixed assets (3,010) (655) Sale of tangible fixed assets 490 745 _______ _______ (2,520) 90 _______ _______ Acquisitions and disposals Acquisition of businesses and subsidiaries (12,030) (6,578) _______ _______ Equity dividends paid (16,621) (17,320) _______ _______ Net cash inflow/(outflow) before financing 1,631 (26,750) _______ _______ Financing Bank loans advanced 280,621 187,030 Repayment of bank loans (236,300) (162,000) Exercise of share options 2,641 208 Repayment of principal under finance leases (2,218) (2,028) _______ _______ Net cash inflow from financing 44,744 23,210 _______ _______ Increase/(decrease) in cash 4 46,375 (3,540) Notes 1. Accounting policies The financial information has been prepared on the basis of the accounting policies set out in the financial statements for the year ended 31 December 1998. The group has adopted Financial Reporting Standard ('FRS') 12 (Provisions, Contingent Liabilities and Contingent Assets) and FRS 13 (Derivatives and other Financial Instruments: Disclosures) this year, with no material effect on the group's results. 2. Reconciliation of operating profit to net cash inflow from operating activities 1999 1998 £'000 £'000 Operating profit 92,164 73,222 Depreciation charge 2,720 2,228 Profit on sale of tangible fixed assets (3) (58) LTIP charge 350 200 Increase in stocks and work in progress and BES assets (14,996) (71,231) Increase in debtors (5,673) (7,679) (Decrease)/increase in creditors (17,608) 21,332 _______ _______ Net cash inflow from operating activities 56,954 18,014 3. Analysis of net debt Cash flow and 1999 lease financing 1998 £'000 £'000 £'000 Net cash: Cash at bank and in hand 51,762 51,578 184 Bank overdrafts (14,712) (5,203) (9,509) ______ _______ _______ Net cash per cash flow statement 37,050 46,375 (9,325) Debt and lease financing: Bank loans - 44,920 (44,920) US senior loan notes (131,891) (89,241) (42,650) Finance leases (4,328) 1,487 (5,815) _______ _______ _______ Debt and lease financing (136,219) (42,834) (93,385) _______ _______ _______ Net debt (99,169) 3,541 (102,710) Analysed as: Cash at bank and in hand 51,762 184 Borrowings due within one year (22,605) (15,809) Borrowings due after more than one year (123,998) (81,270) Finance leases (4,328) (5,815) _______ _______ (99,169) (102,710) 4. Reconciliation of net cash flow to net debt 1999 1998 £'000 £'000 Increase/(decrease) in cash in the year 46,375 (3,540) Increase in debt and lease finance (42,103) (23,002) _______ _______ Decrease/(increase) in net debt from cash flows 4,272 (26,542) New finance leases (731) (3,042) _______ _______ Decrease/(increase) in net debt in the year 3,541 (29,584) Net debt at 1 January (102,710) (73,126) _______ _______ Net debt at 31 December (99,169) (102,710) 5. Earnings per share The calculation of basic earnings per share is based on earnings after taxation of £57,636,000 (1998: £44,795,000) and 179,796,076 ordinary shares (1998: 178,134,131) being the weighted average number of ordinary shares in issue during the period. Diluted earnings per share is calculated by dividing earnings after taxation by the weighted average number of ordinary shares in issue for the period, adjusted for the dilutive effect of shares held under unexercised options. The weighted average number of ordinary shares so calculated is 181,063,710 (1998: 178,578,294). 6. The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 1999 or 1998 but is derived from those accounts. Statutory accounts for the year ended 31 December 1998 have been delivered to the Registrar of Companies, and those for the year ended 31 December 1999 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. 7. The annual report will be posted to shareholders on 21 March 2000. Copies of the annual report will also be available from the Company Secretary, Persimmon plc, Persimmon House, Fulford, York, YO19 4FE. Further information on the Group can be found on the Persimmon website at www.persimmonhomes.com

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